Since the Great Depression and World War II, the domestic policies of most West European countries have been based on a “psychology of scarcity”--- a belief that resources and opportunities are limited, and that to promote fairness, government policies must allocate or redistribute them. The idea of a national government regulating and otherwise intervening in the economy for the common good has been accepted Western European public policy for many decades. Following the collapse of the Soviet bloc, Central and East European governments have followed suit, with “social democratic” domestic regimes.
By contrast, Americans have historically followed a “psychology of abundance” -- a belief that resources and opportunities are plentiful and it is up to each individual to take advantage of them. Success or failure is determined by an individual’s own actions. Success is the reward of initiative and hard work, and failure is not caused by others or the government.
This American belief is rooted in the very beginning of the nation, as the first waves of European settlers brought with them a profound trust in freedom and individual responsibility and an equally profound distrust of government intervention in any sphere, public or private. . This is the Calvinist Protestant Ethic: Good people who work hard could create a better life for themselves and their children, and in so doing could create a new and different -- and better --kind of democratic nation.
The Wealth of Nations published by Scottish Calvinist Adam Smith in 1776 argued that a laissez-faire, free-market economic system would enable individuals to prosper and lead to the overall economic growth of the nation. This economic theory was accompanied by a liberal political philosophy emphasizing a minor role for government in people’s lives and the over-riding rights of citizens to be self-governing. Americans didn’t want a king, queen or a pope meddling in their lives. Most agreed with Thomas Jefferson: “That government is best which governs least.”
This view of the world could flourish on a continent blessed with seemingly unlimited natural resources, temperate climate, and wide-open spaces ripe for settlement. America’s isolation from European wars supported its determination to build a new kind of country, unburdened by national rivalries and rigid class systems. Individual success built American collective success, and reinforced the belief in "rugged individualism" and in the universal goodness and soundness of the ideals of the Founders.
Hard work by moral men allowed people to move up the economic ladder, enhanced the growth of the overall economy, and led to a civic society with such progress-prone ideas as delayed gratification, a focus on a better future, and frugality – all adding up to “the American Dream.”
Despite the ups and downs of periodic “panics” or other economic shocks and the Civil War, the American Dream could become a reality for most immigrants throughout the 19th and into the 20th Century. Westward expansion, land that could be homesteaded, natural resources such as gold, silver, and oil, burgeoning commerce and trade both domestic and foreign created opportunity and a decent life for millions who streamed to America to escape poverty, rigid societies, and strife in Europe.
The Great War of 1914-18 reminded Americans that the rest of the world still held peril. But even here, American idealism and exceptionalism held sway as President Woodrow Wilson mobilized the nation to help “make the world safe for democracy.” And the post-war “Roaring Twenties” cemented the idea that prosperity and progress were inevitable.
The 1929 Crash and the worldwide Great Depression broke the reverie. And so nearly broke American confidence that Franklin Delano Roosevelt was moved to proclaim in his 1933 inaugural that “The only thing we have to fear is -- fear itself.”
FDR’s task was as much psychological as political and economic. Because he was a pragmatic politician, his administration tried many different things, discarding those that failed and honing those that appeared to work.
For a few years, a psychology of scarcity replaced one of abundance. Only the federal government had enough money to stimulate the economy. It had to prime the capitalist pump and once it started working again, it would step out of the way leaving only those programs that stabilized the economy and protected the individual. Traditional American invididualism had to be supported by active government intervention: With unemployment exceeding 25%, banks failing, farms and homes being foreclosed, spiraling deflation and collapsing production, FDR’s administration had to increase spending to boost demand and create jobs. But it also laid the foundation for far more activist government involvement in and regulation of the economy.
While the Depression was not really overcome until the massive effort of winning World War II, wartime production converted to peacetime was the great engine that created the consumer economy, rebuilt war-torn Asia and Europe, and launched whole new industries built around brand-new technologies in transportation, telecommunications, consumer electronics and what has come to be known as Information Technology.
The psychology of abundance returned. With greatly expanded consumer credit, ever-more-efficient manufacturing and distribution, and entirely new goods and services created or supported by expansive IT and communications systems, the developed and developing world alike came to expect a continuing upward spiral of opportunity and wealth. People too easily borrowed too much money to spend on too many goods and services, gargantuan global financial instititutions arose, and national economies grew increasingly more interdependent.
The binge came to an end with the recent worldwide financial collapse and economic recession. Today, a combination of inadequately regulated markets and unrestrained greed magnified by sheer incompetence has created a worldwide economic and financial crisis of scale and magnitude not seen since the Great Depression.
A sober realism has replaced utopian expectations and lofty optimism. Some pundits accuse President Obama of being too pessimistic. It is certainly true that few politicians have ever succeeded by suggesting that things could get worse.
The typical American optimism and faith that the future will inevitably be better has been profoundly shaken. But this traditional American perspective is often seen by Europeans as naïve or immature. This is not the time to deny the scarcity that actually exists.
Just as the aftermath of World War II required a burst of creativity resulting in new structures, processes, and organizations that have helped order international economics and politics, the current crisis offers unmatched opportunity to redress excess and moderate the psychology of abundance with a dose of the psychology of scarcity. What is needed is a blending of eternal American optimism, vigor and action with European longer-term perspective and structured process, a balance between the psychologies of abundance and of scarcity.
The American public seems ready to adopt a new kind of realistic idealism typical of mature adults --clearly more ready than some of its public figures. Because unrestrained financial deregulation contributed to the current crisis, it is unlikely that most Americans want to return to some kind of idealized laissez-faire capitalism, as some politicians and commentators propose. On the other hand, neither is there evidence that Americans want the sort of national welfare system and “managed economy” that constrains individual creativity and entrepreneurial behavior.
Few disagree that government must assume greater responsibility and intervene. This may be viewed as an extreme step but it is not "socialism" as some on the Right charge. It is temporary, practical and necessary -- until the free fall ends and the national and global economies stabilize and begin to grow anew.
The current crises remind us all that economies do not continually expand, even though we had ample evidence of this truth throughout our own American economic history.
They can also help us learn and accept the reality that relatively unrestrained capitalism and individualism can jeopardize the common good, and that the “common good” now embraces the wider global community through the global economy. This more nuanced and balanced, more mature view understands that in times of social and economic emergencies — just as in times of national-security emergencies —governments have to do more -- and sometimes unusual -- things.